Your Wealth – Paper or Hard Assets?

Oxfam released their annual report this week showing that the richest 62 billionaires own as much wealth as the poorer half of the world’s population.  The latter is about 3 billion people.  Staggering stuff huh?  We wrote about this last year too and it’s just getting worse.  Indeed in their 2010 report it took 388 of the wealthiest compared to just 62 now.  All the money printing (QE), particularly since the GFC, that was supposed to enrich the masses and get them stimulating the economy, has just gone to the rich.  It hasn’t improved real growth it has just inflated financial assets like shares.

But it is this latter point that could see you move up that ‘ladder’ so to speak, and its all about ‘paper wealth’ v hard asset wealth.  You see it would be a fair bet that the vast majority of this so-called wealth is tied up in those very same inflated financial assets.  When you consider that in the 2001 crash the NASDAQ fell 80% and in the GFC shares more broadly halved you can see how very quickly that ‘wealth’ can disappear. French banking giant Societe Generale last week predicted a 75% drop in the Dow Jones this year.

All the warning signs are out there now.  You can’t pick up a paper and certainly can’t read one of our news articles without seeing the writing on the wall.  You can even watch a Hollywood movie right now in the cinemas.  Yesterday the chief executive of the Australian Stock Exchange, Elmer Funke, warned that the world is burdened by $200 trillion in debt that won't get paid back and will ultimately destroy emerging market economies and global growth.  That $200 trillion is old news, we told you about it nearly a year ago, but it is certainly starting to bite now.

The point is, as RBS warned last week, sometimes capital preservation is more important than capital appreciation.  History tells us that in financial market crashes gold and silver can give you both.  Let us leave you again with yesterday’s quote from OECD review committee Chair White [emphasis ours]:

"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,"